C) EC BRUSSELS 6270 (1973)
1. BEGIN SUMMARY: THE OCTOBER 2 COUNCIL OF AGRICULTURAL MINISTERS
LIMITED OFFICIAL USE
LIMITED OFFICIAL USE
PAGE 02 EC BRU 07694 01 OF 02 032130Z
CALLED FOR A COMMISSION STOCK-TAKING AND A COUNCIL DISCUSSION OF
THE EC COMMON AGRICULTURAL POLICY (CAP) (SEE SEPTEL). SOME SEE
THIS AS A WEDGE FOR REFORM. HOWEVER, AN EFFORT TO REFORM THE CAP
INVOLVES ALTERATION OF A VERY COMPLICATED COMPROMISE. THE SUBJECT
HAS BEEN DISCUSSED OVER THE YEARS, BUT UNTIL NOW REFORM HAS
FOUNDERED ON THE INABILITY OF REFORMERS TO FIND PROPOSALS
THAT NOT ONLY IMPROVE THE SYSTEM BUT ALSO SATISFY ALL THE
CONFLICTING INTERESTS. THIS CABLE ANALYZES SOME OF THE
PROBLEMS AND SOME OF THE POSSIBLE ALTERNATIVE SOLUTIONS.
END SUMMARY.
2. INTRODUCTION: GERMANY HAS MADE IT CLEAR THAT IT SEEKS
SOME FUNDAMENTAL RESTRUCTURING OF THE CAP. THE BRITISH
WOULD AGREE. MAFOR EFFORTS TO REFORM THE CAP HAVE BEEN
TRIED BEFORE. MANSHOLT'S RADICAL 1972 PROPOSALS WERE,
HOWEVER, NEVER SERIOUSLY CONSIDERED, AND LARDINOIS' MORE
MODEST EFFORTS LAST FALL RECEIVED LITTLE ATTENTION. FOR ITS PART,
THE UNITED STATES HAS ALSO ENCOURAGED THE IDEA OF REFORM
INTO THE HOPE THAT REFORM WOULD BRING GREATER ACCESS FOR
OUR PRODUCTS. THE COUNCIL DECISION MEANS THERE WILL BE
A REVIEW, PROBABLY BASED ON THE LARDINOIS PAPER, BUT IT
WILL TAKE A LONG TIME AND WE CANNOT NOW PREDICT RESULTS.
3. ELEMENTS OF THE CURRENT SYSTEM: THE MAIN PRINCIPLES
OF THE CAP ARE (1) COMMUNITY PREFERENCE, (2) COMMON
PRICING AND FREE MOVEMENT OF PRODUCTS WITHIN THE
COMUNITY, AND (3) COMMON FINANCING. THE COMPROMISE
ESTABLISHING THE CURRENT CAP IS OFTEN DESCRIBED AS THE
"ROME TREATY BARGAIN,"I.E. AGRICULTURAL BENEFITS FOR
FRANCE IN EXCHANGE FOR INDUSTRIAL GAINS FOR GERMANY.
(IT IS NO ACCIDENT THAT ITALIAN PRODUCTS WERE LONG LEFT
OUT OF THE CAP.) IT ASSURED A MARKET FOR FRENCH FARM
PRODUCTS. HOWEVER, THE CAP COMPROMISE INVOLVED FAR MORE
THAN THAT. IN INVOLVED AN ENCOURAGEMENT TO A CONTINUATION
OF THE EXISTING FARM PATTERNS. IT PERPETUATED INEFFICIENT
FARMING PRACTICES BY SUBSIDIES AND OTHER INDUCEMENTS.
THUS, THERE IS LITTLE MOTIVATION FOR STRUCTURAL CHANGE IN
THE CURRENT CAP. BY INSULATING EUROPEAN FARMERS FROM
WORLD MARKETS IT BROUGHT A PRICE STABILITY WHICH THEY
CONSIDER IMPORTANT. IT RESULTED IN A TRANSFER OF RESOURCES
FROM URBAN TO RURAL AREAS INVOLVING NOT ONLY A WELFARE
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LIMITED OFFICIAL USE
PAGE 03 EC BRU 07694 01 OF 02 032130Z
SYSTEM FOR POOR FARMERS UT ALSO A SYSTEM OF PAYMENTS TO
BOG FARMERS, WHO ARE IMPORTANT POLITICALLY. HIGH INTERNAL
PRICES ALLOWED BALANCE OF PAYMENTS AND URBAN-RURAL TRANSFERS
THAT WERE DIFFICULT TO ASCERTAIN AND THEREFORE DIFFICULT TO
COMPLAIN AGAINST. THE HIGH PRICES HAVE ALSO MINIMIZED THE
CONTRIBUTIONS BY NATIONAL TREASURIES BY EFFECTING A DIRECT
TRANSFER FROM URBAN CONSUMERS TO RURAL PRODUCERS.
4. THE CAP IS NOT A SINGLE MONOLITHIC SYSTEM. IT
CONTAINS SEVERAL SUPPORT MECHANISMS. THE SUGAR PROGRAM
INVOLVES HIGH PRICES FOR CERTAIN QUANTITIES OF PRODUCTION
BUT LOWER PRICES IN EXCESS OF THESE AMOUNTS. ITALY OPER-
ATES A DIFICIENCY-PAYMENT SCHEME FOR DURUM WHEAT, IN WHICH
DIRECT PAYMENTS ARE MADE TO FARMERS, AND FOR OLIVE OIL, IN
WHICH DIRECT PAYMENTS ARE MADE TO CRUSHERS. HOWEVER, THE
PRINCIPAL FEATURE OF THE CAP ON THE IMPORTANT GRAIN AND
DAIRY PRODUCTS IS MAINTENANCE OF A HIGH TARGET PRICE BY
LEVIES ON IMPORTS AND SUBSIDIES ON EXPORTS. IN RECENT
YEARS THIS PRICE HAS BEEN MAINTAINED AT LOWER-THAN-WORLD
MARKETS LEVELS BY EXPORT LEVIES.
5. THE COMPLAINTS: MANY ARE NOW CONVINCED THAT THE
SYSTEM DOES NOT WORK. THE SYSTEM OF COMMON PRICING HAS
BEEN TORPEDOED BY EXCHANGE RATE CHANGES. THE PRICING
SYSTEM HAS BEEN TOO RIGID TO HANDLE PROBLEMS CAUSED BY THE
FACT THAT MANY PRODUCTS ARE OUTPUTS FOR SOME FARMERS BUT
INPUTS FOR OTHERS. THE INTERRELATIONSHIP OF GRAINS AND
LIVESTOCK, DIARY AND BEEF, AND DAIRY AND VEGETABLE OILS
HAVE FRUSTRATED EFFORTS TO ATTAIN DESIRED POLICY RESULTS
IN INDIVIDUAL PRODUCT SECTORS. THE FINAL END PRODUCTS ON
WHICH POLICY MAKERS WOULD HAVE MORE DISCRETION ARE FOR
REASONS OF THEIR OWN DIFFICULT TO HANDLE. THE DIARY
SURPLUS HAS BEEN ONE OF THE MOST EXPENSIVE AND TROUBLESOME.
IT LED TO THE ENCOURAGEMENT OF BEEF PRODUCTION AT HIGH
PRICES WHICH DISCOURAGED CONSUMPTION. BECAUSE OF THE
SCARCITY OF REFRIGERATION THE EC CANNOT EFFECTVELY
SUPPORT PRICES OF MEAT WHEN IT IS IN HEAVY SURPLUS.
6. HIGH CAP PRICES DO NOT PROVIDE MUCH INCOME FOR SMALL
FARMERS. THEY TAKE NO ACCOUNT OF THE NEED TO EQUATE
SUPPLY AND DEMAND AND HAVE RESULTED IN GROWING SELF-
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PAGE 04 EC BRU 07694 01 OF 02 032130Z
SUFFICIENCY, SURPLUSES AND EXPORT SUBSIDIES. THE CONSTANT
NEED FOR EXPORT SUBSIDIES HAS MADE THE CAP A VERY EX-
PENSIVE POLICY. EXCEPT IN THE LAST TWO YEARS, THE HIGH
PRICES HAVE BURDENED THE CONSUMERS, AND THE PRINCIPAL
CONSUMING COUNTRIES, GERMANY AND THE UK, BELIEVE THEY
CARRY A DISPROPORTIONATE LOAD.
7. MEMBER STATES, FINDING THAT THE COMMON AGRICULTURAL
POLICY WAS NOT SOLVING THEIR AGRICULTURAL PROBLEMS, HAVE
BEGUN A WIDER USE OF "NATIONAL MEASURES" WITHOUT SEEKING
THEIR PARTNERS' APPROVAL. THESE MEASURES AHVE CONSISTED
MAINLY OF SUBSIDIES TO PARTICLAR GROUPS OF PRODUCERS.
THESE HAVE BEEN PARTICULARLY GALLING FOR GERMANY AS THE
PRINCIPAL CONTRIBUTOR TO THE EXPENSES OF THE CAP (THOUGH
SHE TOO LACKS CLEAN HANDS). THEY INCREASE HER OWN
FARMERS' PRESSURE FOR NATIONAL MEASURES, THEY ENCOURAGED
SUBSIDIZED PRODUCTS IN COMPETITION WITH GERMAN PRODUCTION
AND BY INCREASING OUTPUT CONTRIBUTED TO THE NEED FOR
EXPORT SUBSIDIES.
8. POSSIBILITIES OF REFORM: THOUGH THE THEORETICAL
POSSIBILITIES FOR REFORM ARE RELATIVELY NUMEROUS, THE
PRACTICAL AND POLITICAL PROBLEMS ARE MUCH MORE DIFFICULT.
IT IS NOT NOW POSSIBLE TO FORECAST ACCURATELY WHAT WOULD
BE THE RESULT OF A SEROUS REVIEW OF THE CAP, BUT IT MAY
BE USEFUL TO LOOK AT SOME ALTERNATIVES.
LIMITED OFFICIAL USE
NNN
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PAGE 01 EC BRU 07694 02 OF 02 032014Z
73
ACTION EUR-25
INFO OCT-01 IO-14 ISO-00 SWF-02 AID-05 CEA-02 CIAE-00
COME-00 EB-12 FRB-03 INR-11 NSAE-00 RSC-01 CIEP-03
SP-03 STR-08 TRSE-00 LAB-06 SIL-01 SAM-01 OMB-01
AGR-20 L-03 H-03 SS-20 NSC-07 PA-04 PRS-01 USIA-15
DRC-01 /173 W
--------------------- 120893
R 031727Z OCT 74
FM USMISSION EC BRUSSSELS
TO SECSTATE WASHDC 7564
INFO AMEMBASSY BONN
AMEMBASSY BRUSSELS
AMEMBASSY COPENHAGEN
AMEMBASSY DUBLIN
AMEMBASSY LONDON
AMEMBASSY LUXEMBOURG
AMEMBASSY PARIS
AMEMBASSY ROME
AMEMBASSY THE HAGUE
USMISSION OECD PARIS
USMISSION GENEVA
LIMITED OFFICIAL USE SECTION 2 OF 2 EC BRUSSELS 7694
PASS AGRICULTURE
9. A PATCH WORK COMPROMISE: A COMPLETE REVISION OF THE
CAP WOULD BE VERY DIFFICULT WITHOUT UPSETTING MEMBER STATE
GOVERNMENTS AND A NUMBER OF POLITICALLY-IMPORTANT GROUPS
AND VESTED INTERESTS WITHIN THE MEMBER STATES. THE
EASIEST CHANGE WOULD BE FURTHER PATCHES ON THE PRESENT
STRUCTURE. ONE OF THE POSSIBILITIES WOULD BE CONTINUATION
OF THE CURRENT BASIC STRUCTURE BUT WITH LOWER SUPPORT
PRICES. LARNINOIS' PROPOSALS OF LAST FALL (REF C)
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PAGE 02 EC BRU 07694 02 OF 02 032014Z
ESSENTIALLY AMOUNTED TO AN EFFORT TO STREAMLINE THE
CURRENT SYSTEM BY CHANGING THE RELATIONSHIP OF GRAIN
PRICES TO FAVOR THE PRODUCTION OF FEED GRAINS AND DIS-
COURAGE THAT OF WHEAT; TAXING DAIRY PRODUCERS TO REDUCE
DAIRY SURPLUSES; ABOLISHING THE REGIONAL INTEREVENTION
PRICES FOR SOME GRAINS, ETC. THIS KIND OF APPROACH COULD
ALSO INVOLVE SOME OF THE MORE FUNDAMENTAL CHANGES LISTED
BELOW, BUT THE PRIME PROBLEM OF SUCH AN APPROACH IS THE
WETER OF ADMINISTRATIVE COMPLICATIONS INVOLVED IN
BUILDING ON A FAULTY FOUNDATION.
10. MORE EMPHASIS ON NATIONAL SOLUTIONS: DESPITE THE
CURRENT GERMAN INDIGNATION OVER "NATIONAL MEASURES"
GERMANY HAS IN THE PAST IMPLIED THAT IT WOULD PREFER
TO RELY LESS ON A COMMON AGRICULTURAL POLICY AND ALLOW
MEMBER STATES TO TREAT THEIR OWN INDIVIDUAL RURAL PROBLEMS
IN THEIR OWN FASHION. THE BRITISH HAVE ALSO ENCOURAGED
THE IDEA OF GREATER NATIONAL FLEXIBILILITY. WITH A REDUCED
RURAL POPULATION OF SMALL FARMERS, GERMANY COULD HANDLE
HER OWN AGRICULTURAL PROBLEMS THOUGH A NATIONAL SYSTEM AT
LESS EXPENSE THAN IS NOW ENTAILED FOR HER AS THE
"TREASURER" FOR THE COMMON POLICY. SHE PARTICULARLY DOES
NOT WISH TO BE TREASURER FOR THE COMMON MEASURES WHEN
OTHER MEMBER STATES ARE SPENDING FUNDS ON THEIR OWN
NATIONAL MEASURES. HOWEVER, THE FRENCH, THE DUTCH, THE
IRISH AND THE DANES AS CURRENT BENFICIIARIES WOULD RESIST
ANY EFFORT TO MOVE FROM A COMMON TOWARD A NATIONAL APPROACH.
11. A RETURN TO THE MARKET; NOR IS IT LIKELY THAT A
REFORM OF THE CAP WOULD ENTAIL ACCEPTANCE OF "MARKET
PRINCIPLES" IN THE UNITED STATES' SENSE. FARMERS'
POLITICAL POWER, THE DEEP EUROPEAN DISLIKE FOR WIDE PRICE
VARIATIONS, TRATIONAL SUPPORT FOR MANAGED ECONOMIS,
AND THE RESISTANCE OF THE PRINCIPAL CURRENT BENEFICIARIES
OF THE CAP MAKE SUCH AN APPROACH DIFFICULT TO SELL.
12. A DEFICIENCY PAYMENT SCHEME: OF THE POSSIBILITIES FOR
MORE FUNDAMENTAL CHANGE, ONE IN WHICH INTEREST SEEMS CON-
CENTRATED IS THAT OF A DIFICIENCY PAYMENT SCHEME. UNDER
SUCH A SCHEME, FARMERS WOULD BE GUARANTEED A GIVEN RETURN
PER UNIT OF PRODUCTION. IF THE MARKET PRICE FELL BELOW
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PAGE 03 EC BRU 07694 02 OF 02 032014Z
THAT AMOUNT, THE FARMERS WOULD RECEIVE DIRECT PAYMENT.
SUCH A CHANGE WOULD APPEAL TO THE BRITISH, SINCE THIS IS
BASICALLY THE SYSTEM THEY FOLLOW BEFORE 1972. PEARTY
ENDORSED SUCH A SCHEME IN THE JUNE 18 SESSION OF THE
COUNCIL OF AGRICULTURAL MINISTERS (EC BRUSSELS 4334),
WHEN HE ALSO STRESSED COMPATIBILITY OF SUCH A SCHEME WITH
THE BASIC PRICNIPLES OF THE CAP. THERE ARE MANY VARIANTS
ON SUCH A SCHEME, DEPENDING ON THE LEVEL OF PRICES SET.
A LOW LEVEL OF PRICES WOULD FAVOR EFFICIENT PRODUCERS
BUT WOULD BE EXTREMELY DIFFICULT FOR HILL FARMERS, AND THEREFORE
WOULD FIND RESISTANCE, PARTICULARLY IN BAVARIAN, THOUGH
THE GERMAN GOVERMENT IMPLIES THAT IT IS WILLING TO TAKE
GRETER RISKS IN THIS DIRECTION THAN PREVOUSLY, BECAUSE
OF THE SHIFT IN THE POLITICAL BALANCE IN THE BUNDESTAG.
THE EFFICIENT DUTCH FARMERS AND THE LARGE GRAIN PRODUCERS
IN THE PARIS BASIN WOULD BE MORE LIKELY ABLE TO
TOLERATE SUCH PROPOSALS.
13. WITH DEFICIENCY PAYMENT PRICES SET AT THE CURRENT CAP
LEVELS, HOWEVER, SUCH A SCHEME WOULD ENTAIL VERY HIGH
GOVERNMENT EXPENDITURES. THE CURRENT CAP HIDES URBAN-RURAL
TRANSFERS THROUGH THE MECHNAISM OF HIGH PRICES. A
DEFICIENCY PAYMENT SCHEME WOULD MAKE THESE PAYMENTS MORE
VISIBLE, SINCE THEY WOULD APPEAR IN THE BUDGET. LARDINOIS
HAS IN THE PAST OPPOSED A DEFICIENCY PAYMENT SCHEME,WHICH HE
OMITTED FROM HIS MEMORANDUM OF LAST OCTOBER, BECAUSE OF ITS HIGH
COST TO GOVERNMENTS. SUC A SCHEME WOULD ALSO THROW INTO QUESTION
THE WHOLE THRESHOLD PRICE MECHANISM WHICH IS TIGHTLY TIED
TO INTERNAL PRICES AND IS DESIGNED TO INSULATE EC PRODUCERS
FROM MORE COMPETITIVE THIRD-COUNTRY PRODUCERS.
14. STRUCTURAL REFORM-INCOME SUPPLEMENTS: THE TYPES OF
REFORM LISTED ABOVE MIGHT NOT BASICALLY BE AIMED AT
ALTERING THE PATTERN OF EUROPEAN FARMING. HOWEVER, JUST
BEFORE HIS DEPARTURE FROM THE COMMISSION, MANSHOLT
PROPOSED A PLAN INVOLVING INCOME SUPPLEMENTS WHOSE PURPOSE
WAS TO EASE INEFFICIENT FARMERS OFF THE LAND. SUCH AN
EFFORT WOULD BE DIRECTLY CONTRARY TO THE TENDENCY IN THE
CURRENT CAP TO PRESERVE THE STATUS QUO. THERE ARE A
NUMBER OF WAYS TO DO THIS. FOR EXAMPLE, (A) DEFICIENCY
PAYMENTS PER UNIT OF PRODUCTION WITH LIMITS ON THE AMOUNT
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ANY ONE FARMER COULD RECEIVE, (B) A REVIVAL OF THE OLD
FRENCH QUANTUM SYSTEM WITH DECLINING PAYMENTS FOR PRODUCTS
DELIVERED OVER A TARGET QUANTITY, (C) GUARANTEED ANNUAL
INCOMES FOR FARMERS, ETC. SCHEMES COULD BE CONTRUCTED TO
INVOLVE HEAVY EXPENDITURES OR LESS HEAVY ONES, BUT MOST
PEOPLE BELIEVE THAT ANY EFFORT TO MOVE IN THE DIRECTION OF
INCOME PAYMENTS (A) WOULD BE DIFFICULT TO POLICE, (B) WOULD
INVOLVE HEAVIER GOVERNMENT EXPENDITURES THAN THE CURRENT
SYSTEM, AND (C) WOULD RUN INTO ADMINISTRATIVE DIFFICULTIES
BECAUSE OF THE WIDE VARIATION IN PER CAPITA FARMER INCOME
WITHIN THE COMMUNITY. SOME SORT OF STRUCTURAL REFORM IS
ALREADY GOING ON WITH THE CONTINUED RAPID EXODUS OF
PEOPLE FROM FARMS. STRUCTURAL REFORM IS IN THE VIEW OF
SOME THE ONLY WAY OF COMING TO A SATISFACTORY SOLUTION OF
EUROPE'S AGRICULTURAL PROBLEMS. HOWEVER, THE RESPONSES
GIVEN TO MANSHOLT'S PROPOSALS DO NOT INDICATE THAT THIS
IS LIKELY SOON AND WE SEE LITTLE APPETITE IN THE MEMBER
STATES FOR SUCH A RADICAL PROPOSITION.
15. CONCLUSION. THERE WILL BE A NUMBER OF VARIATIONS ON
THESE BASIC THEMES AS DISCUSSIONS OF REFORM GET UNDER WAY.
PREDICTION AT THIS POINT IS USELESS. ARRIVING AT A
SOLUTION TO SATISY THE MANY INTERESTED POLITICAL PLAYERS
WILL BE HARD, BUT IS IS OBVIOUS THAT DISCONTENT WITH THE
PRESENT SYSTEM IS HIGHER NOW THEN IT HAS BEEN PREVIOUSLY.
THE EXODUS OF FARMERS IS NOT ONLY RESULTING IN CHANGES IN
THE FARMING SCENE,IT IS SLOWLY DIMINISHING THE POLITICAL
WEIGHT OF THE FARM BLOC IN SOME MEMBER STATES. THE
COMBINED EFFORT OF THESE TENDENCIES MAY BE SUFFICIENT TO
BRING ABOUT SOME SIGNIFICANT ALTERATIONS IN THE COMMON
AGRICULTURAL POLICY IN THE NEXT FEW YEARS, BUT THE
OBSTACLES TO REFORM ARE FORMIDABLE.MYERSON
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Raw content

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PAGE 01 EC BRU 07694 01 OF 02 032130Z
73
ACTION EUR-25
INFO OCT-01 IO-14 ISO-00 SWF-02 AID-05 CEA-02 CIAE-00
COME-00 EB-12 FRB-03 INR-11 NSAE-00 RSC-01 CIEP-03
SP-03 STR-08 TRSE-00 LAB-06 SIL-01 SAM-01 OMB-01
AGR-20 L-03 H-03 SS-20 NSC-07 PA-04 PRS-01 USIA-15
DRC-01 /173 W
--------------------- 121559
R 031727Z OCT 74
FM USMISSION EC BRUSSELS
TO SECSTATE WASHDC 7563
INFO AMEMBASSY BONN
AMEMBASSY BRUSSELS
AMEMBASSY COPENHAGEN
AMEMBASSY DUBLIN
AMEMBASSY LONDON
AMEMBASSY LUXEMBOURG
AMEMBASSY PARIS
AMEMBASSY ROME
AMEMBASSY THE HAGUE
USMISSION OECD PARIS
USMISSION GENEVA
LIMITED OFFICIAL USE SECTION 1 OF 2 EC BRUSSELS 7694
PASS AGRICULTURE
E.O. 11652: N/A
TAGS: EAGR, EC
SUBJECT: REFORM OF THE CAP - WHAT IT ENTAILS
REF: A) EC BRUSSELS 7626 B) EC BRUSSELS 4334
C) EC BRUSSELS 6270 (1973)
1. BEGIN SUMMARY: THE OCTOBER 2 COUNCIL OF AGRICULTURAL MINISTERS
LIMITED OFFICIAL USE
LIMITED OFFICIAL USE
PAGE 02 EC BRU 07694 01 OF 02 032130Z
CALLED FOR A COMMISSION STOCK-TAKING AND A COUNCIL DISCUSSION OF
THE EC COMMON AGRICULTURAL POLICY (CAP) (SEE SEPTEL). SOME SEE
THIS AS A WEDGE FOR REFORM. HOWEVER, AN EFFORT TO REFORM THE CAP
INVOLVES ALTERATION OF A VERY COMPLICATED COMPROMISE. THE SUBJECT
HAS BEEN DISCUSSED OVER THE YEARS, BUT UNTIL NOW REFORM HAS
FOUNDERED ON THE INABILITY OF REFORMERS TO FIND PROPOSALS
THAT NOT ONLY IMPROVE THE SYSTEM BUT ALSO SATISFY ALL THE
CONFLICTING INTERESTS. THIS CABLE ANALYZES SOME OF THE
PROBLEMS AND SOME OF THE POSSIBLE ALTERNATIVE SOLUTIONS.
END SUMMARY.
2. INTRODUCTION: GERMANY HAS MADE IT CLEAR THAT IT SEEKS
SOME FUNDAMENTAL RESTRUCTURING OF THE CAP. THE BRITISH
WOULD AGREE. MAFOR EFFORTS TO REFORM THE CAP HAVE BEEN
TRIED BEFORE. MANSHOLT'S RADICAL 1972 PROPOSALS WERE,
HOWEVER, NEVER SERIOUSLY CONSIDERED, AND LARDINOIS' MORE
MODEST EFFORTS LAST FALL RECEIVED LITTLE ATTENTION. FOR ITS PART,
THE UNITED STATES HAS ALSO ENCOURAGED THE IDEA OF REFORM
INTO THE HOPE THAT REFORM WOULD BRING GREATER ACCESS FOR
OUR PRODUCTS. THE COUNCIL DECISION MEANS THERE WILL BE
A REVIEW, PROBABLY BASED ON THE LARDINOIS PAPER, BUT IT
WILL TAKE A LONG TIME AND WE CANNOT NOW PREDICT RESULTS.
3. ELEMENTS OF THE CURRENT SYSTEM: THE MAIN PRINCIPLES
OF THE CAP ARE (1) COMMUNITY PREFERENCE, (2) COMMON
PRICING AND FREE MOVEMENT OF PRODUCTS WITHIN THE
COMUNITY, AND (3) COMMON FINANCING. THE COMPROMISE
ESTABLISHING THE CURRENT CAP IS OFTEN DESCRIBED AS THE
"ROME TREATY BARGAIN,"I.E. AGRICULTURAL BENEFITS FOR
FRANCE IN EXCHANGE FOR INDUSTRIAL GAINS FOR GERMANY.
(IT IS NO ACCIDENT THAT ITALIAN PRODUCTS WERE LONG LEFT
OUT OF THE CAP.) IT ASSURED A MARKET FOR FRENCH FARM
PRODUCTS. HOWEVER, THE CAP COMPROMISE INVOLVED FAR MORE
THAN THAT. IN INVOLVED AN ENCOURAGEMENT TO A CONTINUATION
OF THE EXISTING FARM PATTERNS. IT PERPETUATED INEFFICIENT
FARMING PRACTICES BY SUBSIDIES AND OTHER INDUCEMENTS.
THUS, THERE IS LITTLE MOTIVATION FOR STRUCTURAL CHANGE IN
THE CURRENT CAP. BY INSULATING EUROPEAN FARMERS FROM
WORLD MARKETS IT BROUGHT A PRICE STABILITY WHICH THEY
CONSIDER IMPORTANT. IT RESULTED IN A TRANSFER OF RESOURCES
FROM URBAN TO RURAL AREAS INVOLVING NOT ONLY A WELFARE
LIMITED OFFICIAL USE
LIMITED OFFICIAL USE
PAGE 03 EC BRU 07694 01 OF 02 032130Z
SYSTEM FOR POOR FARMERS UT ALSO A SYSTEM OF PAYMENTS TO
BOG FARMERS, WHO ARE IMPORTANT POLITICALLY. HIGH INTERNAL
PRICES ALLOWED BALANCE OF PAYMENTS AND URBAN-RURAL TRANSFERS
THAT WERE DIFFICULT TO ASCERTAIN AND THEREFORE DIFFICULT TO
COMPLAIN AGAINST. THE HIGH PRICES HAVE ALSO MINIMIZED THE
CONTRIBUTIONS BY NATIONAL TREASURIES BY EFFECTING A DIRECT
TRANSFER FROM URBAN CONSUMERS TO RURAL PRODUCERS.
4. THE CAP IS NOT A SINGLE MONOLITHIC SYSTEM. IT
CONTAINS SEVERAL SUPPORT MECHANISMS. THE SUGAR PROGRAM
INVOLVES HIGH PRICES FOR CERTAIN QUANTITIES OF PRODUCTION
BUT LOWER PRICES IN EXCESS OF THESE AMOUNTS. ITALY OPER-
ATES A DIFICIENCY-PAYMENT SCHEME FOR DURUM WHEAT, IN WHICH
DIRECT PAYMENTS ARE MADE TO FARMERS, AND FOR OLIVE OIL, IN
WHICH DIRECT PAYMENTS ARE MADE TO CRUSHERS. HOWEVER, THE
PRINCIPAL FEATURE OF THE CAP ON THE IMPORTANT GRAIN AND
DAIRY PRODUCTS IS MAINTENANCE OF A HIGH TARGET PRICE BY
LEVIES ON IMPORTS AND SUBSIDIES ON EXPORTS. IN RECENT
YEARS THIS PRICE HAS BEEN MAINTAINED AT LOWER-THAN-WORLD
MARKETS LEVELS BY EXPORT LEVIES.
5. THE COMPLAINTS: MANY ARE NOW CONVINCED THAT THE
SYSTEM DOES NOT WORK. THE SYSTEM OF COMMON PRICING HAS
BEEN TORPEDOED BY EXCHANGE RATE CHANGES. THE PRICING
SYSTEM HAS BEEN TOO RIGID TO HANDLE PROBLEMS CAUSED BY THE
FACT THAT MANY PRODUCTS ARE OUTPUTS FOR SOME FARMERS BUT
INPUTS FOR OTHERS. THE INTERRELATIONSHIP OF GRAINS AND
LIVESTOCK, DIARY AND BEEF, AND DAIRY AND VEGETABLE OILS
HAVE FRUSTRATED EFFORTS TO ATTAIN DESIRED POLICY RESULTS
IN INDIVIDUAL PRODUCT SECTORS. THE FINAL END PRODUCTS ON
WHICH POLICY MAKERS WOULD HAVE MORE DISCRETION ARE FOR
REASONS OF THEIR OWN DIFFICULT TO HANDLE. THE DIARY
SURPLUS HAS BEEN ONE OF THE MOST EXPENSIVE AND TROUBLESOME.
IT LED TO THE ENCOURAGEMENT OF BEEF PRODUCTION AT HIGH
PRICES WHICH DISCOURAGED CONSUMPTION. BECAUSE OF THE
SCARCITY OF REFRIGERATION THE EC CANNOT EFFECTVELY
SUPPORT PRICES OF MEAT WHEN IT IS IN HEAVY SURPLUS.
6. HIGH CAP PRICES DO NOT PROVIDE MUCH INCOME FOR SMALL
FARMERS. THEY TAKE NO ACCOUNT OF THE NEED TO EQUATE
SUPPLY AND DEMAND AND HAVE RESULTED IN GROWING SELF-
LIMITED OFFICIAL USE
LIMITED OFFICIAL USE
PAGE 04 EC BRU 07694 01 OF 02 032130Z
SUFFICIENCY, SURPLUSES AND EXPORT SUBSIDIES. THE CONSTANT
NEED FOR EXPORT SUBSIDIES HAS MADE THE CAP A VERY EX-
PENSIVE POLICY. EXCEPT IN THE LAST TWO YEARS, THE HIGH
PRICES HAVE BURDENED THE CONSUMERS, AND THE PRINCIPAL
CONSUMING COUNTRIES, GERMANY AND THE UK, BELIEVE THEY
CARRY A DISPROPORTIONATE LOAD.
7. MEMBER STATES, FINDING THAT THE COMMON AGRICULTURAL
POLICY WAS NOT SOLVING THEIR AGRICULTURAL PROBLEMS, HAVE
BEGUN A WIDER USE OF "NATIONAL MEASURES" WITHOUT SEEKING
THEIR PARTNERS' APPROVAL. THESE MEASURES AHVE CONSISTED
MAINLY OF SUBSIDIES TO PARTICLAR GROUPS OF PRODUCERS.
THESE HAVE BEEN PARTICULARLY GALLING FOR GERMANY AS THE
PRINCIPAL CONTRIBUTOR TO THE EXPENSES OF THE CAP (THOUGH
SHE TOO LACKS CLEAN HANDS). THEY INCREASE HER OWN
FARMERS' PRESSURE FOR NATIONAL MEASURES, THEY ENCOURAGED
SUBSIDIZED PRODUCTS IN COMPETITION WITH GERMAN PRODUCTION
AND BY INCREASING OUTPUT CONTRIBUTED TO THE NEED FOR
EXPORT SUBSIDIES.
8. POSSIBILITIES OF REFORM: THOUGH THE THEORETICAL
POSSIBILITIES FOR REFORM ARE RELATIVELY NUMEROUS, THE
PRACTICAL AND POLITICAL PROBLEMS ARE MUCH MORE DIFFICULT.
IT IS NOT NOW POSSIBLE TO FORECAST ACCURATELY WHAT WOULD
BE THE RESULT OF A SEROUS REVIEW OF THE CAP, BUT IT MAY
BE USEFUL TO LOOK AT SOME ALTERNATIVES.
LIMITED OFFICIAL USE
NNN
LIMITED OFFICIAL USE
PAGE 01 EC BRU 07694 02 OF 02 032014Z
73
ACTION EUR-25
INFO OCT-01 IO-14 ISO-00 SWF-02 AID-05 CEA-02 CIAE-00
COME-00 EB-12 FRB-03 INR-11 NSAE-00 RSC-01 CIEP-03
SP-03 STR-08 TRSE-00 LAB-06 SIL-01 SAM-01 OMB-01
AGR-20 L-03 H-03 SS-20 NSC-07 PA-04 PRS-01 USIA-15
DRC-01 /173 W
--------------------- 120893
R 031727Z OCT 74
FM USMISSION EC BRUSSSELS
TO SECSTATE WASHDC 7564
INFO AMEMBASSY BONN
AMEMBASSY BRUSSELS
AMEMBASSY COPENHAGEN
AMEMBASSY DUBLIN
AMEMBASSY LONDON
AMEMBASSY LUXEMBOURG
AMEMBASSY PARIS
AMEMBASSY ROME
AMEMBASSY THE HAGUE
USMISSION OECD PARIS
USMISSION GENEVA
LIMITED OFFICIAL USE SECTION 2 OF 2 EC BRUSSELS 7694
PASS AGRICULTURE
9. A PATCH WORK COMPROMISE: A COMPLETE REVISION OF THE
CAP WOULD BE VERY DIFFICULT WITHOUT UPSETTING MEMBER STATE
GOVERNMENTS AND A NUMBER OF POLITICALLY-IMPORTANT GROUPS
AND VESTED INTERESTS WITHIN THE MEMBER STATES. THE
EASIEST CHANGE WOULD BE FURTHER PATCHES ON THE PRESENT
STRUCTURE. ONE OF THE POSSIBILITIES WOULD BE CONTINUATION
OF THE CURRENT BASIC STRUCTURE BUT WITH LOWER SUPPORT
PRICES. LARNINOIS' PROPOSALS OF LAST FALL (REF C)
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ESSENTIALLY AMOUNTED TO AN EFFORT TO STREAMLINE THE
CURRENT SYSTEM BY CHANGING THE RELATIONSHIP OF GRAIN
PRICES TO FAVOR THE PRODUCTION OF FEED GRAINS AND DIS-
COURAGE THAT OF WHEAT; TAXING DAIRY PRODUCERS TO REDUCE
DAIRY SURPLUSES; ABOLISHING THE REGIONAL INTEREVENTION
PRICES FOR SOME GRAINS, ETC. THIS KIND OF APPROACH COULD
ALSO INVOLVE SOME OF THE MORE FUNDAMENTAL CHANGES LISTED
BELOW, BUT THE PRIME PROBLEM OF SUCH AN APPROACH IS THE
WETER OF ADMINISTRATIVE COMPLICATIONS INVOLVED IN
BUILDING ON A FAULTY FOUNDATION.
10. MORE EMPHASIS ON NATIONAL SOLUTIONS: DESPITE THE
CURRENT GERMAN INDIGNATION OVER "NATIONAL MEASURES"
GERMANY HAS IN THE PAST IMPLIED THAT IT WOULD PREFER
TO RELY LESS ON A COMMON AGRICULTURAL POLICY AND ALLOW
MEMBER STATES TO TREAT THEIR OWN INDIVIDUAL RURAL PROBLEMS
IN THEIR OWN FASHION. THE BRITISH HAVE ALSO ENCOURAGED
THE IDEA OF GREATER NATIONAL FLEXIBILILITY. WITH A REDUCED
RURAL POPULATION OF SMALL FARMERS, GERMANY COULD HANDLE
HER OWN AGRICULTURAL PROBLEMS THOUGH A NATIONAL SYSTEM AT
LESS EXPENSE THAN IS NOW ENTAILED FOR HER AS THE
"TREASURER" FOR THE COMMON POLICY. SHE PARTICULARLY DOES
NOT WISH TO BE TREASURER FOR THE COMMON MEASURES WHEN
OTHER MEMBER STATES ARE SPENDING FUNDS ON THEIR OWN
NATIONAL MEASURES. HOWEVER, THE FRENCH, THE DUTCH, THE
IRISH AND THE DANES AS CURRENT BENFICIIARIES WOULD RESIST
ANY EFFORT TO MOVE FROM A COMMON TOWARD A NATIONAL APPROACH.
11. A RETURN TO THE MARKET; NOR IS IT LIKELY THAT A
REFORM OF THE CAP WOULD ENTAIL ACCEPTANCE OF "MARKET
PRINCIPLES" IN THE UNITED STATES' SENSE. FARMERS'
POLITICAL POWER, THE DEEP EUROPEAN DISLIKE FOR WIDE PRICE
VARIATIONS, TRATIONAL SUPPORT FOR MANAGED ECONOMIS,
AND THE RESISTANCE OF THE PRINCIPAL CURRENT BENEFICIARIES
OF THE CAP MAKE SUCH AN APPROACH DIFFICULT TO SELL.
12. A DEFICIENCY PAYMENT SCHEME: OF THE POSSIBILITIES FOR
MORE FUNDAMENTAL CHANGE, ONE IN WHICH INTEREST SEEMS CON-
CENTRATED IS THAT OF A DIFICIENCY PAYMENT SCHEME. UNDER
SUCH A SCHEME, FARMERS WOULD BE GUARANTEED A GIVEN RETURN
PER UNIT OF PRODUCTION. IF THE MARKET PRICE FELL BELOW
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THAT AMOUNT, THE FARMERS WOULD RECEIVE DIRECT PAYMENT.
SUCH A CHANGE WOULD APPEAL TO THE BRITISH, SINCE THIS IS
BASICALLY THE SYSTEM THEY FOLLOW BEFORE 1972. PEARTY
ENDORSED SUCH A SCHEME IN THE JUNE 18 SESSION OF THE
COUNCIL OF AGRICULTURAL MINISTERS (EC BRUSSELS 4334),
WHEN HE ALSO STRESSED COMPATIBILITY OF SUCH A SCHEME WITH
THE BASIC PRICNIPLES OF THE CAP. THERE ARE MANY VARIANTS
ON SUCH A SCHEME, DEPENDING ON THE LEVEL OF PRICES SET.
A LOW LEVEL OF PRICES WOULD FAVOR EFFICIENT PRODUCERS
BUT WOULD BE EXTREMELY DIFFICULT FOR HILL FARMERS, AND THEREFORE
WOULD FIND RESISTANCE, PARTICULARLY IN BAVARIAN, THOUGH
THE GERMAN GOVERMENT IMPLIES THAT IT IS WILLING TO TAKE
GRETER RISKS IN THIS DIRECTION THAN PREVOUSLY, BECAUSE
OF THE SHIFT IN THE POLITICAL BALANCE IN THE BUNDESTAG.
THE EFFICIENT DUTCH FARMERS AND THE LARGE GRAIN PRODUCERS
IN THE PARIS BASIN WOULD BE MORE LIKELY ABLE TO
TOLERATE SUCH PROPOSALS.
13. WITH DEFICIENCY PAYMENT PRICES SET AT THE CURRENT CAP
LEVELS, HOWEVER, SUCH A SCHEME WOULD ENTAIL VERY HIGH
GOVERNMENT EXPENDITURES. THE CURRENT CAP HIDES URBAN-RURAL
TRANSFERS THROUGH THE MECHNAISM OF HIGH PRICES. A
DEFICIENCY PAYMENT SCHEME WOULD MAKE THESE PAYMENTS MORE
VISIBLE, SINCE THEY WOULD APPEAR IN THE BUDGET. LARDINOIS
HAS IN THE PAST OPPOSED A DEFICIENCY PAYMENT SCHEME,WHICH HE
OMITTED FROM HIS MEMORANDUM OF LAST OCTOBER, BECAUSE OF ITS HIGH
COST TO GOVERNMENTS. SUC A SCHEME WOULD ALSO THROW INTO QUESTION
THE WHOLE THRESHOLD PRICE MECHANISM WHICH IS TIGHTLY TIED
TO INTERNAL PRICES AND IS DESIGNED TO INSULATE EC PRODUCERS
FROM MORE COMPETITIVE THIRD-COUNTRY PRODUCERS.
14. STRUCTURAL REFORM-INCOME SUPPLEMENTS: THE TYPES OF
REFORM LISTED ABOVE MIGHT NOT BASICALLY BE AIMED AT
ALTERING THE PATTERN OF EUROPEAN FARMING. HOWEVER, JUST
BEFORE HIS DEPARTURE FROM THE COMMISSION, MANSHOLT
PROPOSED A PLAN INVOLVING INCOME SUPPLEMENTS WHOSE PURPOSE
WAS TO EASE INEFFICIENT FARMERS OFF THE LAND. SUCH AN
EFFORT WOULD BE DIRECTLY CONTRARY TO THE TENDENCY IN THE
CURRENT CAP TO PRESERVE THE STATUS QUO. THERE ARE A
NUMBER OF WAYS TO DO THIS. FOR EXAMPLE, (A) DEFICIENCY
PAYMENTS PER UNIT OF PRODUCTION WITH LIMITS ON THE AMOUNT
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ANY ONE FARMER COULD RECEIVE, (B) A REVIVAL OF THE OLD
FRENCH QUANTUM SYSTEM WITH DECLINING PAYMENTS FOR PRODUCTS
DELIVERED OVER A TARGET QUANTITY, (C) GUARANTEED ANNUAL
INCOMES FOR FARMERS, ETC. SCHEMES COULD BE CONTRUCTED TO
INVOLVE HEAVY EXPENDITURES OR LESS HEAVY ONES, BUT MOST
PEOPLE BELIEVE THAT ANY EFFORT TO MOVE IN THE DIRECTION OF
INCOME PAYMENTS (A) WOULD BE DIFFICULT TO POLICE, (B) WOULD
INVOLVE HEAVIER GOVERNMENT EXPENDITURES THAN THE CURRENT
SYSTEM, AND (C) WOULD RUN INTO ADMINISTRATIVE DIFFICULTIES
BECAUSE OF THE WIDE VARIATION IN PER CAPITA FARMER INCOME
WITHIN THE COMMUNITY. SOME SORT OF STRUCTURAL REFORM IS
ALREADY GOING ON WITH THE CONTINUED RAPID EXODUS OF
PEOPLE FROM FARMS. STRUCTURAL REFORM IS IN THE VIEW OF
SOME THE ONLY WAY OF COMING TO A SATISFACTORY SOLUTION OF
EUROPE'S AGRICULTURAL PROBLEMS. HOWEVER, THE RESPONSES
GIVEN TO MANSHOLT'S PROPOSALS DO NOT INDICATE THAT THIS
IS LIKELY SOON AND WE SEE LITTLE APPETITE IN THE MEMBER
STATES FOR SUCH A RADICAL PROPOSITION.
15. CONCLUSION. THERE WILL BE A NUMBER OF VARIATIONS ON
THESE BASIC THEMES AS DISCUSSIONS OF REFORM GET UNDER WAY.
PREDICTION AT THIS POINT IS USELESS. ARRIVING AT A
SOLUTION TO SATISY THE MANY INTERESTED POLITICAL PLAYERS
WILL BE HARD, BUT IS IS OBVIOUS THAT DISCONTENT WITH THE
PRESENT SYSTEM IS HIGHER NOW THEN IT HAS BEEN PREVIOUSLY.
THE EXODUS OF FARMERS IS NOT ONLY RESULTING IN CHANGES IN
THE FARMING SCENE,IT IS SLOWLY DIMINISHING THE POLITICAL
WEIGHT OF THE FARM BLOC IN SOME MEMBER STATES. THE
COMBINED EFFORT OF THESE TENDENCIES MAY BE SUFFICIENT TO
BRING ABOUT SOME SIGNIFICANT ALTERATIONS IN THE COMMON
AGRICULTURAL POLICY IN THE NEXT FEW YEARS, BUT THE
OBSTACLES TO REFORM ARE FORMIDABLE.MYERSON
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